The Bottom Line / Discount Is Changing the Rules of Privatization

The Israel Discount Bank is changing the rules of banking in Israel.

What, haven't you heard about it? Haven't you noticed? Why, Modi Baron is telling everyone about it in his commercials.

The bank says it is lengthening its opening hours until late, and offering new, innovative products under the slogan: Discount is changing the banking rules.

Over the last three years, Discount has taken a large number of steps, led by CEO Giora Offer. Discount can certainly say it has undergone a revolution. Its credit portfolio has been cleaned up and stabilized; its New York branch was properly shaken up after a money-laundering scandal; and the bank's outdated computer systems have been upgraded.

Soon the bank will be able to say it has caught up to the two large banks, Leumi and Hapoalim. And of course there is the main change at Discount: the bank was privatized and is now in the hands of Matthew Bronfman and his group.

Usually, privatization of a bank, or any other company, brings a new and different spirit to the newly privatized firm. But in the case of Discount, which suffered so many serious crises over the last decade, the expectations of such a shake-up were even greater.

But two years after the bank fell into private hands, it seems Discount has managed to change the rules of privatization, too.

The bank still suffers from a very strong union, which blocks every management initiative to make the bank more competitive. Every suggestion meets with the union's veto.

Even extending the opening hours at 30 branches was met by work sanctions so bad that the management countered by calling a lockout against its workers.

The union does not object to Discount changing the rules of banking; it just refuses to allow Discount to change the rules of the bank.

And this is the reason it seems like Discount was never privatized. The power of its union, its effect on the bank and its ability to subvert every move is a destructive force that has left Discount far behind the big banks.

Discount knows exactly what it has to do to progress. The bank itself - without its subsidiaries and overseas branches - has suffered from miserable profitability for very many years. Its management may have a theory that you need to view the entire concern as a whole, but this looks like avoidance of the principle problems at the bank: low operating efficiency.

The salary and benefit packages that Chairman Shlomo Zohar and CEO Giora Offer received last week are meant to move them toward making much braver decisions than in the past.

At the end of this long road, we will see if Discount has succeeded in changing its own rules - the same rules that have left it in the dust for more than a decade.